Yesterday's New York Cash Exchange sessions on cash investing featured Federated Investors' Debbie Cunningham and Fidelity Investments' Michael Morin. The conference also attracted a camera crew from CNBC, which discussed European debt concerns with conference-goers and broadcast a brief segment.
Cunningham reviewed recent Rule 2a-7 changes in the morning and weighed in on the President's Working Group report, the cost of the new SEC Money Market Fund Reforms (in basis points), and on European worries. She said of the PWG report, "It likely won't be released until financial services legislation goes through." The report should contain suggestions on a possible floating NAV, the potential for money funds becoming specialty banks and holding capital and reserves, and the likelihood of an industry-sponsored liquidity facility, the latter being the most preferable, she said. Cunningham said the impact of the new reforms should be 3-8 basis points, and that Europe was "more perception risk as opposed to credit quality risk." Greece and Portugal, she said, were never eligible for money market funds.
In the afternoon, Morin said money funds have outyielded bank products by over a full percentage point historically. He commented, "There is a clear advantage for cash investors to utilize money funds over MMDAs." He also estimated the costs of the new SEC rules at a higher 11-29 basis points and said, "They are a little premature to label this a European sovereign crisis. This is likely from a liquidity perspective to not become a problem.... But you do have headline risk."
CNBC ran a story entitled, "European Concerns and Money Market Funds on its "Power Lunch" program, which said, "There are reasons to be nervous at the Treasury Management Conference in New York [New York Cash Exchange] where concerns about some of the safest debt offerings have reached a sort of post-financial crisis peak. At issue is the lack of confidence in Europe and the ripples throughout that lending landscape.... Some people are very concerned about what is going on in Europe.... However, not everybody sees this as a huge problem. Some shrug it off as a lot of media hype, [saying] that it's going to die down due to the ECB package."
Cunningham told CNBC her moves to shorten maturities are driven by the interest rate environment as much as anything else. She says, "Our outlook is that we're going to be into a rising rate environment going into the end of this year into 2011. We've already seen the LIBOR curve steepen out pretty nicely, and shortening weighted average maturities is the right tack to take from a strategy perspective during that time because it makes the funds more nimble, more able to react in a rising rate environment and have more cashflow available to invest at the higher rates ... down the road."
Another CNBC segment later that day quoted Cunningham, "I think there has been a lot of reconstructing of portfolios to shorten and make sure people are in compliance with those 10 and 30 [percent] rules that didn't exist prior to last Friday."
